Dow Jones Deal Still a Shaky Prospect

While the board of directors at Dow Jones ( DJ) has signaled that it's ready to accept News Corp.'s ( NWS) buyout offer, some reported dissension from Bancroft representatives suggests that the family remains a big wild card in the deal.

The publisher of the Wall Street Journal announced late Tuesday that its board is "ready to approve" the $5 billion offer from News Corp., but the deal is not done until members of the Bancroft family, Dow Jones' controlling shareholders, pledge enough support to constitute a majority of its overall voting power.

Dow Jones spokesman Howard Hoffman declined to comment on the details of the board's vote and whether it was unanimous, but the Journal reported that two directors who are representatives of the Bancroft family, Christopher Bancroft and Leslie Hill, abstained from the vote, reflecting legal liabilities that prevented them from registering "no" votes.

The Journal also reported that Dieter von Holtzbrinck, the retired head of a German publishing empire that he inherited, abstained from the vote, and Dow Jones CEO Richard Zannino, Bancroft family trustee Michael B. Elefante and Bancroft family member Lisa Steele voted to recommend the offer.

Zannino, who was reportedly an initial contact for News Corp. Chairman and CEO Rupert Murdoch when he was mulling an offer, has previously declined to take a position on the bid.

Steven Davidoff, a professor with Wayne State University Law School, says that the lack of unanimity among directors in supporting the deal weakens the board's endorsement, but he says the support from a majority of directors bodes well for a deal getting done.

"Plenty of deals do get done on that basis," says Davidoff. "It's not the best practice for the company to not say what the vote was and who abstained from it and otherwise. They should have done that, but there's no requirement that they do that at this point."

With the board coming out in support of a deal, the negotiations shift back to the Bancroft family, which controls Dow Jones through a Web of trusts that owns super-voting shares laying claim to 64% of the company's voting rights.

Initially, the Bancrofts declined to consider Murdoch's $60-a-share offer, which offered a 67% premium to Dow Jones stock price before it was announced. The family reversed course and agreed to consider a sale in response to the dire outlook for Dow Jones as a stand-alone company.

Despite a lengthy negotiation, Dow Jones has failed to squeeze any more premium out of News Corp., and it has yet to receive an offer from another buyer that is viewed as a credible alternative. Internet entrepreneur Brad Greenspan and supermarket magnate Ron Burkle have worked on an alternative bid with Christopher Bancroft, but it's unclear whether they're gaining any traction.

A Bancroft family spokesman, Roy Winnick, says members of the family will be presented with the News Corp. offer on Monday.

"They will then be asked over the following several days to decide and indicate whether they want to support the deal," says Winnick.

Shares of Dow Jones were recently down 79 cents, or 1.4%, to $55.66, indicating that the market is pricing in a small possibility that Murdoch's $60-a-share offer will fall through.

The Bancrofts' reluctance comes partly from misgivings about News Corp.'s editorial standards and practices. Dow Jones negotiated a set of safeguards for the editorial policies of its media properties, but it's unclear whether key members have been persuaded to accept the deal.

"There is both philosophical and probably even some level of personal contempt that some of the Bancrofts have for Murdoch -- if not for him personally, at least for his business methodology and his ability to infuse his politics and business interests into the coverage of his news outlets," says Murray Schwartz, a mergers and acquisitions attorney with Katten Muchin Rosenman LLP. "The thought of that stuff being applied to a venerable newspaper like the Journal is probably nauseating to some of these people, but when you're offered this much money for a newspaper that doesn't justify that price on any financial basis, it's very hard to refuse it."

Rejecting the deal would not only cause the Bancrofts to lose a chance to cash out with big gains, but they would also see their stock holdings plummet.

"If the Bancrofts reject this deal, forgetting all the other ramifications involved, they as a family are likely to see the value of their holdings drop by about a half a billion dollars," says Richard Dorfman, managing director with Richard Alan Inc., a financial advisory and investment firm focused on the media industry. "That's an amount they aren't likely to recoup anytime soon, if ever."